12th Mar 2008 07:00
MTR Corporation Ltd12 March 2008 MTR CORPORATION LIMITED (Incorporated in Hong Kong with limited liability) (Stock code: 66) ANNOUNCEMENT OF AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 +------------------------------------------------------------------------------+| ||HIGHLIGHTS || ||Financial || ||• Results included the impact of the Rail Merger from 2 December 2007 || ||• Revenue increased 12% to HK$10,690 million || ||• EBITDA, excluding merger related expenses, increased 13.7% to || HK$5,912 million || ||• Property development profit increased 42.8% to HK$8,304 million || ||• Net profit attributable to equity shareholders excluding investment || property revaluations and related deferred tax (profit from underlying || businesses)increased 43.8% to HK$8,571 million || ||• Net profit attributable to equity shareholders including investment || property revaluations and related deferred tax of HK$15,180 million || ||• Net assets increased 18.6% to HK$91,037 million at 2007 year-end || ||• Net debt / equity ratio increased from 36.3% at 2006 year-end to 48.5% at || 2007 year-end || ||• Final dividend of HK$0.31 per share recommended by the Board resulting in || total dividend for the year of HK$0.45 per share, representing a 7.1% || increase || ||Operational || ||• Rail Merger completed on 2 December 2007 || ||• Average weekday patronage of Domestic Service increased from 2.5 million in|| 2006 to 3.5 million after Rail Merger || ||• Ginza Mall in Beijing and Elements at Kowloon Station opened in January and|| October 2007 respectively || ||• Tseung Kwan O Area 56 and LOHAS Park Package Three developments awarded in || February and November 2007 respectively || ||• West Island Line gazetted under Railway Ordinance in October and design || funding granted in December 2007 || ||• Government requested the Company to proceed with preliminary planning and || design of South Island Line (East) in December 2007 || ||• Government requested the Company on 11 March 2008 to proceed with further || planning and design of Shatin-to-Central Link and the Kwun Tong Line || extension to Whampoa || ||• Ngong Ping 360 resumed service on 31 December 2007 |+------------------------------------------------------------------------------+ The Directors of MTR Corporation Limited ("the Company") are pleased to announcethe audited results of the Company and its subsidiaries ("the Group") for theyear ended 31 December 2007 as follows: CONSOLIDATED PROFIT AND LOSS ACCOUNT (HK$ MILLION)________________________________________________________________________________ Year ended 31 December 2007 2006 ________________________________________________________________________________ Fare revenue 7,115 6,523 Station commercial and rail related revenue 1,741 1,542 Rental, management and other revenue 1,834 1,476 ------ -----Turnover 10,690 9,541 ------ ----- Staff costs and related expenses (1,802) (1,653) Energy and utilities (576) (539) Operational rent and rates (99) (65) Stores and spares consumed (130) (120) Repairs and maintenance (521) (511) Railway support services (86) (80) Expenses relating to station commercial and rail (410) (410) related businesses Expenses relating to property ownership, (540) (345) management and other businesses Project study and business development expenses (268) (267) General and administration expenses (183) (192) Other expenses (163) (158) ------ -----Operating expenses before depreciation and (4,778) (4,340) amortisation ------ -----Operating profit from railway and related 5,912 5,201 businesses before depreciation and amortisation Profit on property developments 8,304 5,817 ------ -----Operating profit before depreciation and amortisation 14,216 11,018 Depreciation and amortisation (2,739) (2,674) Merger related expenses (193) - ------ -----Operating profit before interest and finance 11,284 8,344 charges Interest and finance charges (1,316) (1,398) Change in fair value of investment properties 8,011 2,178 Net gain on acquisition of subsidiaries 187 - Share of profits less losses of non-controlled 99 45 subsidiaries and associates ------ ----- Profit before taxation 18,265 9,169 Income tax (3,083) (1,411) ------ -----Profit for the year 15,182 7,758 ====== ===== Attributable to: - Equity shareholders of the Company 15,180 7,759 - Minority interests 2 (1) ------ -----Profit for the year 15,182 7,758 ====== ===== Dividends paid and proposed to equity shareholders of the Company attributable to the year: - Interim dividend declared and paid during the 782 774 year - Final dividend proposed after the balance 1,740 1,554 sheet date ------ ----- 2,522 2,328 ====== =====Earnings per share: - Basic HK$2.72 HK$1.41 - Diluted HK$2.72 HK$1.41 CONSOLIDATED BALANCE SHEET (HK$ MILLION)________________________________________________________________________________ As at 31 December 2007 2006 ________________________________________________________________________________Assets Fixed assets - Investment properties 37,723 22,539 - Other property, plant and equipment 79,444 84,404 - Service concession assets 15,250 - ------- ------- 132,417 106,943 Property management rights 40 - Railway construction in progress 424 232 Property development in progress 9,066 3,297 Deferred expenditure 825 565 Prepaid land lease payments 581 594 Interests in non-controlled subsidiaries 268 171 Interests in associates 205 100 Deferred tax assets 4 1 Investments in securities 333 272 Staff housing loans 15 25 Properties held for sale 756 2,018 Derivative financial assets 273 195 Stores and spares 642 272 Debtors, deposits and payments in advance 5,167 1,894 Loan to a property developer 3,532 3,355 Amounts due from the Government and other 544 177 related parties Cash and cash equivalents 576 310 ------- ------- 155,668 120,421 ------- ------- Liabilities Bank overdrafts 2 5 Short-term loans 507 1,114 Creditors, accrued charges and provisions 5,412 3,639 Current taxation 3 1 Contract retentions 225 193 Amounts due to related parties 975 - Loans and obligations under finance leases 33,541 27,033 Derivative financial liabilities 192 515 Obligations under service concession 10,685 - Deferred income 515 1,682 Deferred tax liabilities 12,574 9,453 ------- ------- 64,631 43,635 ------- ------- Net assets 91,037 76,786 ======= ======= Capital and reserves Share capital, share premium and capital reserve 39,828 38,639 Other reserves 51,186 38,128 ------- -------Total equity attributable to equity shareholders 91,014 76,767 of the Company Minority interests 23 19 ------- -------Total equity 91,037 76,786 ======= ======= Notes: - 1. AUDITORS' REPORT The results for the year ended 31 December 2007 have been audited in accordancewith Hong Kong Standards on Auditing, issued by the Hong Kong Institute ofCertified Public Accountants (HKICPA), by KPMG whose unmodified audit report isincluded in the annual report to be sent to shareholders. The results have alsobeen reviewed by the Group's Audit Committee. 2. BASIS OF PREPARATION These consolidated accounts have been prepared in accordance with all applicableHong Kong Financial Reporting Standards (HKFRS) issued by the HKICPA. Theaccounting policies adopted in the preparation of these accounts are consistentwith those used in the 2006 annual accounts except for changes in accountingpolicies made thereafter in adopting HKFRS 7 "Financial instruments:Disclosures" and the Amendment to Hong Kong Accounting Standard (HKAS) 1"Presentation of financial statements - Capital disclosures" in 2007. Theadoption of both HKFRS 7 and the amendment to HKAS 1 does not have any materialimpact on the operating results and financial position apart from the additionaldisclosures in the accounts. In addition, as the merger of the Company with Kowloon-Canton RailwayCorporation (KCRC) is considered to include a service concession arrangementunder the Hong Kong (International Financial Reporting InterpretationsCommittee) (HK(IFRIC)) Interpretation 12, which provides guidance on theaccounting by operators in service concession arrangements for reporting periodscommencing on or after 1 January 2008, the Company has early adopted theInterpretation in the 2007 accounts. 3. RAIL MERGER WITH KOWLOON-CANTON RAILWAY CORPORATION A. On 2 December 2007 (the Appointed Day), the Company's operations merged with those of KCRC (Rail Merger). The structure and key terms of the Rail Merger were set out in a series of transaction agreements entered into between, inter alia, the Government of the Hong Kong Special Administrative Region (HKSAR), KCRC and the Company including the Service Concession Agreement, Property Package Agreements and Merger Framework Agreement. Key elements of the Rail Merger include the following:- • The expansion of the Company's existing franchise under the Mass Transit Railway Ordinance (MTR Ordinance) to cover the construction, operation and regulation of railways in addition to the MTRC railway for an initial period of 50 years from the Appointed Day (Franchise Period), which may be extended pursuant to the provisions of the MTR Ordinance; • The Service Concession Agreement (SCA) pursuant to which KCRC granted the Company the right to access, use and operate the KCRC system for an initial term of 50 years (the Concession Period), which will be extended if the Franchise Period (as it relates to the KCRC railway) is extended. The SCA also sets out the basis on which the KCRC system will be returned at the end of the Concession Period. In accordance with the terms of the SCA, the Company paid an upfront lump sum to KCRC on the Appointed Day and is obliged to pay an annual fixed payment to KCRC for the duration of the Concession Period. Additionally, commencing after three years from the Appointed Day, the Company is obliged to pay an annual variable fee to KCRC based on the revenue generated from the KCRC system above certain thresholds; • Under the SCA, the Company is responsible for the expenditure incurred in relation to the maintenance, repair, replacement and upgrade of the KCRC system (with any new assets acquired being classified as "additional concession property"). To the extent that such expenditure exceeds an agreed threshold (Capex Threshold), the Company will be reimbursed for any above threshold expenditure at the end of the Concession Period with such reimbursement to be on the basis of depreciated book value; • In the event that the Concession Period is extended, the fixed annual payment and the variable annual payment will continue to be payable by the Company. On such extension, the Capex Threshold may also be adjusted; • With effect from the Appointed Day, staff of the Company and KCRC have been employed by the Company on their prevailing terms and conditions of employment. In connection with the Rail Merger, a Staff Voluntary Separation Scheme has been offered to eligible staff; • Property Package Agreements whereby property assets comprising certain investment and own-used properties, property management rights and property development rights were acquired by the Company; • Merger Framework Agreement setting out the framework for the Rail Merger including the implementation of the Fare Adjustment Mechanism whereby the extent to which fares may be adjusted is linked to certain public indices, the provision of a fare reduction starting from the Appointed Day and the guarantee of job security for frontline staff employed at the time of the Rail Merger; • Pursuant to the above and the vesting and novation of certain contracts, the Company assumed certain assets and liabilities of KCRC on the Appointed Day. The assumption of the liabilities of deposits refundable to third parties was subject to compensation by KCRC on the Appointed Day; and • Other post-Appointed Day arrangements between the Company and KCRC such as the arrangements documented by the Kowloon Southern Link (KSL) Project Management Agreement, the West Rail Agency Agreement and the Outsourcing Agreement. B. The principal financial terms of the Rail Merger and their financial impact on the 2007 accounts are described in the following paragraphs. For the acquisition of the service concession, the Company has settled or is liable to settle the following payments to KCRC in respect of the service concession: • Upfront payment of HK$4,250 million was paid on the Appointed Day, of which HK$326 million was in respect of stores and spares, with the balance of HK$3,924 million for the right to access, use and operate the KCRC system (initial concession property), which is capitalised as a service concession asset on the balance sheet and amortised on a straight-line basis over the Concession Period; • Fixed annual payments of HK$750 million are payable by the Company to KCRC throughout the Concession Period. The present value of the total fixed annual payments discounted at the Company's estimated long-term incremental borrowing rate of 6.75% amounting to HK$10,687 million was capitalised as a service concession asset on the balance sheet and amortised on a straight-line basis over the Concession Period with a corresponding liability for obligations under the service concession recognised on the balance sheet; and • Variable annual payments are payable by the Company to KCRC commencing after the third year from the Appointed Day to the end of the Concession Period. The payments are calculated on a tiered basis by reference to the revenues generated from the operation of the service concession over certain thresholds. As at 31 December 2007, HK$49 million was incurred on additional concessionproperty which will be amortised over the shorter of the assets' useful livesand the remaining period of the service concession. The assumption of the liability of deposits refundable to third parties andother liabilities subject to cash compensation by KCRC on the Appointed Dayamounted to HK$663 million. The assumption of other assets and liabilities notsubject to compensation by KCRC on the Appointed Day amounted to a net liabilityamount of HK$226 million, formed part of the cost of acquiring the serviceconcession and was capitalised accordingly. On the Appointed Day, the Company paid a total consideration of HK$7,790 millionfor the transfer of the economic benefits of the property package from KCRC as follows: • Acquisition of certain properties or property holding subsidiaries from KCRC at a consideration of HK$2,840 million. The excess of the fair value of these properties at the balance sheet date over the consideration has been recognised as a gain in the profit and loss account; • Acquisition of property development rights for eight development sites for a consideration of HK$4,910 million, which was recognised at cost as property development in progress on the balance sheet. Pursuant to the transaction agreements, when the development sites which have not been awarded as at the Appointed Day are subsequently awarded, the Company is obliged to pay KCRC an agreed amount of HK$875 million in respect of enabling works carried out by KCRC for such sites, which will be settled by the receipt of mandatory payments from property developers when the sites are awarded; • Acquisition of certain property management rights from KCRC in respect of existing and future managed properties at a consideration of HK$40 million. The amount was capitalised and subject to amortisation on a straight-line basis over the period of the management rights; • Assumption of certain assets and liabilities with a net liability amount of HK$123 million relating to the property package with corresponding cash settlement from KCRC; and • Acquisition of certain other subsidiaries of KCRC. The Rail Merger also gave rise to the following: • The Company obtained a new loan financing facility of HK$10 billion as part of the financing for the above arrangements; and • Deferred expenditure of HK$492 million incurred in connection with the acquisition of the respective assets was capitalised. Income and expenditure and assets and liabilities in relation to the operationof the service concession are accounted for in the respective line items of theGroup's profit and loss account and balance sheet. 4. RETAINED PROFITS The movements of the retained profits during the years ended 31 December 2007and 2006 were as follows: ________________________________________________________________________________ HK$ Million 2007 2006 ________________________________________________________________________________Balance as at 1 January 37,148 31,698 Dividends declared or approved (2,336) (2,309) Profit for the year attributable to equity 15,180 7,759 shareholders of the Company ------- -------Balance as at 31 December 49,992 37,148 ======= ======= 5. PROFIT ON PROPERTY DEVELOPMENTS ________________________________________________________________________________ Year ended 31 December HK$ Million 2007 2006 ________________________________________________________________________________Profit on property developments comprises: Transfer from deferred income on - up-front payments 861 1,213 - sharing in kind 363 555 Share of surplus from development 7,077 3,724 Income recognised from sharing in kind 21 342 Other overhead costs (18) (17) ------- ------- 8,304 5,817 ======= ======= 6. INCOME TAX ________________________________________________________________________________ Year ended 31 December HK$ Million 2007 2006 ________________________________________________________________________________Current tax - overseas 3 2 ------- -------Deferred tax - origination and reversal of temporary differences on: - change in fair value of investment properties 1,402 381 - utilisation of tax losses 1,608 1,197 - others 70 (169) ------- ------- 3,080 1,409 ------- -------Income tax in the consolidated profit and loss 3,083 1,411 account ======= ======= Share of income tax of non-controlled subsidiaries 28 12 Share of income tax of associates 1 - ======= ======= No provision for current Hong Kong Profits Tax has been made in the consolidatedprofit and loss account in respect of the Company and its subsidiaries, as theCompany and its subsidiaries either have accumulated tax losses brought forwardwhich are available for set off against current year's assessable profits orhave sustained tax losses for the year ended 31 December 2007. Taxation foroverseas subsidiaries is charged at the appropriate current rates of taxationruling in the relevant countries. Provision for deferred tax on temporary differences arising in Hong Kong iscalculated at Hong Kong Profits Tax rate at 17.5% (2006: 17.5%). 7. DIVIDEND The Board has recommended to pay a final dividend of HK$0.31 per share. TheCompany proposes that a scrip dividend option will be offered to allshareholders except shareholders with registered addresses in the United Statesof America or any of its territories or possessions. Subject to the approval ofthe shareholders at the forthcoming Annual General Meeting, the final dividendwill be distributed on or about 18 June 2008 to shareholders whose names appearon the Register of Members of the Company as at the close of business on 15April 2008. The Company's majority shareholder, The Financial SecretaryIncorporated, has agreed to elect to receive all or part of its entitlement todividends in the form of scrip to the extent necessary to ensure that a maximumof 50% of the total dividend paid by the Company will be in the form of cash. 8. EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit for the yearattributable to equity shareholders of HK$15,180 million (2006: HK$7,759million) and the weighted average number of ordinary shares of 5,573,736,592 inissue during the year (2006: 5,510,345,238). The calculation of diluted earnings per share is based on the profit for theyear attributable to equity shareholders of HK$15,180 million (2006: HK$7,759million) and the weighted average number of ordinary shares of 5,578,838,104 inissue during the year (2006: 5,516,115,460) after adjusting for the number ofdilutive potential ordinary shares under the employee share option schemes. Both basic and diluted earnings per share would have been HK$1.54 (2006:HK$1.08) if the calculation is based on profit from underlying businessesattributable to equity shareholders, i.e. excluding increase in fair value ofinvestment properties net of related deferred tax. 9. SEGMENTAL INFORMATION ____________________________________________________________________________________ Turnover Contribution to profit Year ended 31 December Year ended 31 December HK$ Million 2007 2006 2007 2006____________________________________________________________________________________ Railway operations 7,115 6,523 1,355 997 Station commercial and 1,741 1,542 1,258 1,050 rail related businesses ------- ------ ------- ------- 8,856 8,065 2,613 2,047Property ownership, 1,834 1,476 1,226 1,109 management and other businesses ------- ------ ------- ------- 10,690 9,541 3,839 3,156 ======= ======Property developments 8,304 5,817 ------- ------- 12,143 8,973 Unallocated corporate (666) (629)expenses Merger related expenses (193) -Interest and finance (1,316) (1,398)charges Change in fair value of 8,011 2,178 investment properties Net gain on acquisition 187 - of subsidiaries Share of profits less 99 45 losses of non-controlled subsidiaries and associates Income tax (3,083) (1,411) ------- ------- 15,182 7,758 ======= ======= Railway operations comprise the operation of an urban mass transit railwaysystem within Hong Kong and an Airport Express serving both the Hong KongInternational Airport and the AsiaWorld-Expo at Chek Lap Kok and following theRail Merger, with effect from 2 December 2007, the KCR System consisting of KCRLines (comprising the East Rail excluding Cross-boundary Service, West Rail andMa On Shan lines), Cross-boundary Service, Light Rail, Bus and Intercitypassenger services. Station commercial and rail related businesses comprise mainly letting ofadvertising and retail space, bandwidth services on the railwaytelecommunication system, railway consultancy services, freight and rail relatedsubsidiaries' businesses. Property ownership, management and other businesses comprise mainly propertyrental, property management and, commencing from September 2006, operationsrelating to Ngong Ping 360. Property developments comprise property development at locations relating to therailway system. As substantially all the principal operating activities of the Group werecarried out in Hong Kong throughout the reporting periods, no geographicalanalysis is provided. 10. DEBTORS AND CREDITORS A The Group's debtors, deposits and payments in advance amounted toHK$5,167 million (2006: HK$1,894 million), out of which HK$3,774 million (2006:HK$825 million) relates to property development which are mainly due accordingto terms of the sales and purchases agreements; and HK$687 million (2006: HK$608million) receivable from rentals, advertising and telecommunication activitieswith due dates ranging from 7 to 50 days, swap interest receivable from debtportfolio management activities due in accordance with the respective terms ofthe agreements, and amounts receivable from consultancy services income duewithin 30 days. As at 31 December 2007, HK$260 million (2006: HK$276 million)were overdue out of which HK$88 million (2006: HK$174 million) were overdue bymore than 30 days. B Creditors, accrued charges and provisions amounted to HK$5,412million (2006: HK$3,639 million), majority of which relate to capital projectpayments to be settled upon certification of work in progress and swap interestpayable under the terms of respective swap agreements for debt portfoliomanagement purposes. The Group has no significant balances of trade creditorsresulting from its provision of transportation and related services. As at 31December 2007, HK$1,354 million (2006: HK$645 million) were amounts either duewithin 30 days or on demand, and the remaining were amounts not yet due. 11. PURCHASE, SALE OR REDEMPTION OF OWN SECURITIES During the year ended 31 December 2007, neither the Company nor any of itssubsidiaries has purchased, sold or redeemed any of its listed securities. 12. CHARGE ON GROUP ASSETS As at 31 December 2007, certain assets held by MTR Corporation (Shenzhen)Limited, an indirect wholly owned subsidiary of the Company, in the Mainland ofChina were pledged as security for a RMB400 million short-term bank loanfacility granted to it. Apart from the above, none of the other Group's assets was charged or subject toany encumbrance as at 31 December 2007. 13. ANNUAL GENERAL MEETING It is proposed that the Annual General Meeting of the Company will be held on 29May 2008. For details of the Annual General Meeting, please refer to the Noticeof Annual General Meeting which is expected to be published on or about 25 April2008. 14. CORPORATE GOVERNANCE The Company has complied throughout the year ended 31 December 2007 with theCode Provisions set out in the Code on Corporate Governance Practices containedin Appendix 14 of the Rules Governing the Listing of Securities on The StockExchange of Hong Kong Limited (the "Stock Exchange") except that, with respectto Code Provision A.4.1, non-executive Directors of the Company are notappointed for a specific term but are subject (save for those appointed pursuantto Section 8 of the Mass Transit Railway Ordinance (Cap. 556 of the Laws of HongKong)) to retirement by rotation and re-election at the Company's annual generalmeetings in accordance with Articles 87 and 88 of the Company's Articles ofAssociation. On 8 August 2007, the Government of HKSAR appointed Dr. Raymond Ch'ien Kuo-fungas the non-executive Chairman of the Company for a term of 24 months with effectfrom the Rail Merger. The Rail Merger took effect from 2 December 2007. Dr.Raymond Ch'ien, a Member of the Board since 1998, was first appointed as thenon-executive Chairman of the Company with effect from 21 July 2003 for a termof three years, which was renewed in 2006 for a further term up to 31 July 2007.In July 2007, Dr. Ch'ien was re-appointed as the non-executive Chairman of theCompany with effect from 1 August 2007 for a term up to 31 December 2007 or theday to be appointed by the Secretary for Transport and Housing by noticepublished in the Gazette under the Rail Merger Ordinance, whichever was theearlier. The Rail Merger Ordinance relates to the Rail Merger between theCompany and Kowloon-Canton Railway Corporation. On 8 August 2007, the Government of HKSAR selected Mr. Chow Chung-kong as theChief Executive Officer of the Company after the Rail Merger. Mr. Chow wasappointed as the Chief Executive Officer of the Company with effect from 1December 2003 for a term of three years. He was also appointed as a Member ofthe Board on the same date. His contract as the Chief Executive Officer of theCompany was renewed for a further term of three years with effect from 1December 2006. 15. PUBLICATION OF THE RESULTS ANNOUNCEMENT AND ANNUAL REPORT This results announcement is published on the Company's website atwww.mtr.com.hk and the website of the Stock Exchange. The Annual Report willalso be available at the Company's and the Stock Exchange's website in lateApril 2008 and will be despatched to shareholders of the Company in late April2008. KEY STATISTICS____________________________________________________________________________________ Year ended 31 December 2007 2006____________________________________________________________________________________ Total passenger boardings - Domestic Service (in millions) (full-year) 915.8 866.8 - Cross-boundary Service (in thousands) (post-merger) 8,243 - - Airport Express (in thousands) (full-year) 10,175 9,576 - Light Rail (in thousands) (post-merger) 11,100 - Average number of passengers (in thousands) - Domestic Service (weekday) - Pre-merger 2,595 2,513 - Post-merger 3,544 -- Cross-boundary Service (daily) (post-merger) 274.8 - - Airport Express (daily) (full-year) 27.9 26.2 - Light Rail (weekday) (post-merger) 380 -Operating profit from railway and related businesses 55.3% 54.5% before depreciation, amortisation and merger related expenses as a percentage of turnover MANAGEMENT REVIEW AND OUTLOOK 2007 was a successful year for the Company. Firstly, on 2 December, wecompleted the merger of our rail operations with those of the KCRC and acquiredfrom KCRC a portfolio of properties (Rail Merger). Secondly, in Hong Kong, anumber of new rail lines saw progress. The West Island Line was gazetted by theHong Kong SAR Government, and good construction progress was made on the KowloonSouthern Link, which is part of the Rail Merger. Hong Kong SAR's Chief Executivehighlighted in his Policy Speech three additional rail lines as infrastructuralpriority projects, these being the South Island Line (East), theShatin-to-Central Link and the Hong Kong section of the Guangzhou-Shenzhen-HongKong Express Rail Link (Express Rail Link). We welcome Government's latestdecision for the Company to proceed with the further planning and designof Shatin-to-Central Link and the Kwun Tong Line extension to Whampoa. Thirdly,outside of Hong Kong, we won the London Overground Concession together with ourpartner, Laing Rail, whilst work progressed in Beijing on the construction ofBeijing Metro Line 4. 2007 also saw strong financial results for MTR Corporation as we continued tomake steady progress in all our businesses. For the year, our revenue increasedby 12.0% to HK$10,690 million, due to the continued growth in our recurringbusinesses and the effect of the Rail Merger. Operating profit from railway andrelated businesses before depreciation, amortisation and merger related expensesrose by 13.7% to HK$5,912 million. Property development profit recognised in theperiod was HK$8,304 million. Excluding investment property revaluation and therelated deferred tax, net profit from underlying businesses attributable toequity shareholders was HK$8,571 million, 43.8% higher than 2006. Thissignificant increase in underlying profits was primarily the result of the verysignificant property development profits recognised in 2007, in particular fromLe Point at Tiu Keng Leng Station. Earnings per share were HK$1.54 beforeinvestment property revaluation and HK$2.72 after such revaluation. With thestrong financial results, your Board has recommended a final dividend ofHK$0.31, which when combined with the interim dividend of HK$0.14 per share,brings full year dividend to HK$0.45, an increase of 7.1% over 2006. The Rail Merger Following the Memorandum of Understanding between the Company and the Hong KongSAR Government on 11 April 2006, the Rail Merger Ordinance was approved by theLegislative Council of Hong Kong (LegCo) on 8 June 2007. Formal transactiondocuments were entered into between the Government, the Company and KCRC inAugust 2007, and independent shareholders of the Company approved the RailMerger on 9 October. The completion of the Rail Merger on 2 December marked anew era not only for the Company but also for public transportation in HongKong. For our customers, the Rail Merger brought fare reductions as well as betterintegration of the rail network in Hong Kong. For the Company and ourshareholders, the Rail Merger represents a significant increase in the size andscale of our rail and property portfolio as well as growth opportunities in theform of new railway lines throughout Hong Kong and connecting to the Mainland ofChina. The expansion of our rail and rail related businesses together with theRail Merger transaction structure increases our recurrent profitability andenhances the long term sustainability of the Company. This will benefit allstakeholders of the Company and will provide a platform for the sustainabledevelopment of Hong Kong's public transportation services. Operational Review Hong Kong Railway Operations For the year, total patronage on the Integrated MTR System, including the effectof the Rail Merger since 2 December, increased by 8.2% to 948.3 million. Forthe period before the Rail Merger, total patronage increased by 2.9% as comparedto the same period in 2006. Average weekday patronage on pre-Merger MTR Lines increased by 3.3% to 2.6million as compared to the same period last year. After the Rail Merger, ourDomestic Service, which now also includes the KCR Lines (comprising the EastRail excluding Cross-boundary Service, West Rail, and Ma On Shan lines), sawaverage weekday patronage increasing significantly to 3.5 million. Patronage on the Airport Express rose 6.3% to 10.2 million in 2007, as thenumber of air travellers using Hong Kong International Airport continued torise, and the number of exhibitions and other events at AsiaWorld-Expoincreased. For Cross-boundary Service at Lo Wu and Lok Ma Chau, patronage for the full yearrecorded an increase of 4.7% to 92.1 million, of which 8.2 million wasattributable to the Company from the Rail Merger for the period after 2December. Light Rail, Bus and Intercity recorded patronage of 14.1 million forthe period from 2 December to the end of 2007. Our overall share of the franchised public transport market increased from 25.0%in 2006 to 25.3% in the period before the Rail Merger. After the Rail Mergerincluding all rail and bus passenger services, our market share increasedfurther to 41.6%. In the period prior to the Rail Merger, average fare per passenger on the MTRLines was HK$6.83, which was similar to the comparable period in 2006. Afterthe Rail Merger, average fare per passenger on Domestic Service was HK$6.39 withthe reduction in average fares being due to the fare reduction given as part ofthe Rail Merger and the lower average fares on KCR Lines as compared to the MTRLines. Average fare per passenger for Airport Express was HK$64.34 in 2007, anincrease of 0.8% over 2006. Average fare per passenger on Cross-boundaryService was HK$24.51 in 2007, similar to that of 2006. Total fare revenue fromall passenger services for 2007 increased by 9.1% to HK$7,115 million. The successful integration of the two networks on 2 December 2007 reflected thevery high level of integration planning, service and operational performancethat was demonstrated throughout the year. Passengers on time performance onthe pre-Merger MTR System achieved a level of 99.9%. A new operating agreementcame into effect on 2 December 2007 as a result of the Rail Merger that willgovern the performance levels of the Integrated MTR System. To meet the constantly rising expectations of our customers, we invested notonly in the expansion of the network but also in service and efficiencyimprovements. To enhance accessibility, we opened new pedestrian links andentrances at various stations including a pedestrian link at Admiralty Stationconnecting to Three Pacific Place, and two new entrances at Kowloon Stationlinking up to Elements shopping centre. The new Airport Express platform serving SkyPlaza in Hong Kong InternationalAirport Terminal 2 was put into operation. The noise enclosure project in theTung Chung area to reduce noise impact for residents was completed and some railsections along north Lantau were replaced for the same purpose. To improvepassenger comfort, five new trains are being procured for the Tsuen Wan, KwunTong, Island and Tseung Kwan O lines. To promote customer service and to help attract new patronage, various marketingprogrammes were launched, including the selection of a lucky couple toparticipate in the first MTR Hello Kitty Dream Wedding in Hong Kong Station, theMTR Hello Kitty Heroes Redemption Programme and the Ride 5 Get Free BreakfastPromotion. A tailor-made shopping guide entitled "MTR Easy Ride to Hong KongShopping Festival" was developed together with the Hong Kong Tourism Board forthe use of overseas tourists in July and August. On Airport Express, the popular "Ride to Rewards" programme was enhanced withnew rewards. We also arranged same-day return trips on Airport Express as wellas discounted prices for visitors travelling to private events or publicconcerts at AsiaWorld-Expo. On the through train business to the Mainland of China, which we took on afterthe Rail Merger, the fare promotion on Intercity services to Beijing andShanghai in non-peak periods continued. To promote the new Lok Ma Chau Stationof the Cross-boundary Service, free ride promotions over the New Year and LunarNew Year holidays and weekly ticket promotions were provided to customers whoused the new station. Station Commercial and Rail Related Businesses Revenue growth for our station commercial and rail related businesses benefitedfrom a robust economy, rising patronage and the effect of the Rail Merger,resulting in revenue increasing 12.9% to HK$1,741 million despite decreases intelecommunications and consultancy revenues. Excluding the Rail Merger effectfrom 2 December to the year end, such revenues would have increased by 4.8% toHK$1,616 million. Advertising revenue increased by 11.0% to HK$593 million (9.6% to HK$585 millionexcluding the Rail Merger effect), underpinned by higher passenger volumes,advertising innovations and station zone segmentation with the objectives ofoptimizing revenue for the Company and advertising impact for our customers.Revenue also benefited from the replacement of seatback TV with the newmultimedia system on the Airport Express, and the enhancement of the MTR PlasmaTV network. With the Rail Merger, our advertising coverage now extends to anintegrated network with larger patronage, including the cross-boundary market. Station retail revenue rose 27.6% to HK$499 million (9.7% to HK$429 millionexcluding the Rail Merger effect). Renovations and new layouts were completed inthe retail zones of nine stations in 2007 and altogether, 41 stations in the MTRSystem have been renovated since 2001. During the year, 31 new trades/brandswere added to the station retail network in the MTR System to enhance customersatisfaction. With the Rail Merger, the number of shops at stations totaled1,230 at the end of the year, including nine Duty Free shops at Lo Wu, Lok MaChau and Hung Hom stations. Revenue from telecommunications services decreased by 10.0% to HK$233 million ascompared to 2006 due to the cannibalisation of the 2G service by the lessprofitable 3G service. However, our fixed network services provider TraxCommLimited achieved higher revenue and by the end of the year had sold more than220 Gbps of bandwidth services to carrier customers. With the Rail Merger, wetook over the telecoms business of the KCR System, which is similar to MTRCorporation's own telecoms business, and our fibre network coverage expandedfrom 156 kilometres to 324 kilometres. As part of the Rail Merger, we also gained KCRC's relatively small freighttransportation business, which generated revenue of HK$3 million from 2 Decemberto the year end. In external consultancy, we made progress on existing consultancy projects andthe signing of new contracts. Project management consultancy work continued onShanghai Metro Line 9 and Phase 1 (12 stations) opened on schedule on 29December 2007. Overall, external consultancy activities generated a revenue ofHK$193 million in 2007, a decrease of 3.0% compared to 2006, which was mainlydue to programme delays of some projects caused by the changing requirements ofour customers. Property and Other Businesses The Hong Kong property market was very active in 2007. The office and retailrental markets continued to enjoy good growth with supply being limited in theoffice market, and strong retail market driven by consumer and tourist spending. The development rights for eight property development sites totalling 1.2million square metres GFA were acquired as part of the Rail Merger. The Companywill act as the Government's agent for property developments at West Rail sites.The Merger also increased our investment property portfolio by 40,957 squaremetres lettable, particularly in the New Territories. Profit for the year from property developments increased significantly toHK$8,304 million. Amongst this, surplus proceeds contributed HK$7,077 million,particularly from the sale of residential flats from Le Point at Tiu Keng LengStation and to a lesser extent from Harbour Green at Olympic Station. Deferredincome contributed HK$1,224 million being profit recognition mainly from thenewly opened Elements in Kowloon Station, and from Coastal Skyline and CaribbeanCoast in Tung Chung. In February 2007, the tender for Area 56 in Tseung Kwan O town centre wasawarded to Lansmart Ltd, a subsidiary of Sun Hung Kai Properties Limited, withthe plan to develop a hotel, residential, office and retail complex. InNovember, a subsidiary of Cheung Kong (Holdings) Limited was awarded Tseung KwanO Area 86 Package Three, a residential development with up to 1,648 units. Area86 was formally named LOHAS Park in September. Revenues from our property rental, management and other businesses benefitedfrom additions to the portfolio, increased by 24.3% to HK$1,834 million ascompared to 2006; the Rail Merger effect from 2 December to the end of 2007contributed HK$22 million to this total. Within this total, rental income roseby 25.2% over last year to HK$1,581 million (23.5% to HK$1,560 million excludingthe Rail Merger effect), driven by positive rental renewals and new lettings, aswell as contributions from Phase 1 of Elements with lettable area of 39,210square metres and Ginza Mall in Beijing with lettable area of 19,307 squaremetres, both of which opened in 2007. Our latest up-market flagship shopping centre, Elements on top of KowloonStation, was successfully opened in October 2007. It quickly became a uniqueattraction for premier shopping and recreation both for Hong Kong residents andfor visitors. Commercially, Elements was equally successful with 100% of itsshops leased at the time of the opening. The investment properties portfolio acquired as part of the Rail Mergercomprises five shopping centres in the New Territories totalling 36,487 squaremetres lettable, 20 residential units at Royal Ascot and an office at Hung Homof 1,686 square metres lettable. Property management income rose by 12.8% to HK$168 million. During the year,3,121 residential units were added to our property management portfolio atCoastal Skyline, Caribbean Coast and Harbour Green, which together with the9,854 units under management acquired in the Rail Merger, brings the totalnumber of residential units managed by the Company in Hong Kong to 71,851 unitsat the end of 2007. Prior to the Rail Merger, total commercial properties managed by the Companyincreased by 81,457 square metres mainly due to the inclusion of Elements Phase1. With the Rail Merger, an additional 93,026 square metres of commercial areawas added to our property management portfolio to give a total of 756,556 squaremetres at year end. Our managed property portfolio in the Mainland also increased in 2007, with atotal new intake of 480,000 square metres. Altogether, total contracts in handunder management in the Mainland of China amounted to 820,254 square metres. The Ngong Ping 360 cable car and associated theme village on Lantau Island,opened in September 2006. In June 2007, during the annual testing outside ofoperation hours, one of the gondolas dislodged from the cable. There were noinjuries but operations were immediately suspended, followed by detailedinvestigations and a period of intensive testing of safety and operationalprocedures. In September, the Company took over the management and operation ofthe cable car system from the previous contractor through the acquisition of itsHong Kong subsidiary, with a senior management team of our experienced engineersand international cable car professionals. After extensive testing, the systemwas confirmed to be safe and reliable and the cable car service resumed on 31December 2007. Patronage quickly returned to previous levels and we areoptimistic about the future of this project. The revenue contributed for theyear from Ngong Ping 360 was HK$85 million. The Company's share of Octopus' net profit for 2007 was HK$97 million, a 42.6%increase over 2006. The increase was partly a result of an increase in averagedaily Octopus usage of 11.7% to HK$81.9 million per day in 2007, brought aboutby a rise in the number of service providers and improvements in the generaleconomy. Cards in circulation rose to 16.5 million and average dailytransaction volume rose to 10.2 million. By the end of 2007, the total number ofservice providers had risen to 490 from 431. Hong Kong Network Expansion With the completion of the Rail Merger, our key focus will be directed to theconstruction of new rail lines over the next decade, which will significantlycontribute to Hong Kong's future growth. As the first of these new extension projects, the West Island Line (WIL) wasgazetted under the Railways Ordinance in October 2007 followed by approval ofdesign funding by Government in December 2007. WIL is a 'community railway'that aims to rejuvenate the Western District of Hong Kong by enhancingconnectivity for the community through rail service, station exits, lifts andescalators. Works on the Kowloon Southern Link (KSL) connecting the existing East RailLine's East Tsim Sha Tsui Station with West Rail Line's Nam Cheong Station,continued throughout the year. Completion is scheduled for late 2009. TheCompany took the project management responsibility of KSL under the Rail Mergeragreement. However, it will continue to be funded and owned by KCRC, and willform part of the Service Concession when it opens for service. In his Policy Address in October 2007, the Chief Executive of Hong Kong SARidentified a number of new rail lines as priority infrastructure projects. Theseinclude the South Island Line (East), the Shatin-to-Central Link and the HongKong Section of the Express Rail Link. A revised proposal for the South Island Line (East) with updated financial dataand enhanced interchange arrangements at Admiralty Station was submitted toGovernment in June 2007. Government has since requested the Company to proceedwith preliminary planning and design. In addition, feasibility studies werecompleted in 2007 for the Express Rail Link. The Express Rail Link will providecross-boundary high speed train service connecting Hong Kong to the new highspeed rail network in the Mainland of China. The Government announced on 11 March 2008 its decision for the Company toproceed with the further planning and design of Shatin-to-Central Link andthe Kwun Tong Line extension to Whampoa. The 17-km Shatin-to-Central Link, whichwill be based on the scheme proposed by the Company under the Rail Merger, willrun from Tai Wai to Hong Kong Island connecting a number of rail lines toprovide more convenient rail services to passengers. The section from Tai Wai toHung Hom connecting Ma On Shan Line to West Rail Line is expected to becompleted in 2015. The other section which will extend the existing East RailLine from Hung Hom across the harbour to Hong Kong Island is expected to becompleted in 2019. The Company will continue discussions with Government on theoperation of Shatin-to-Central Link by way of a Service Concession. The 3-kmKwun Tong Line extension will run from the existing Yau Ma Tei Station via HoMan Tin to Whampoa and is expected to be completed by 2015. The Company willdiscuss the implementation details of this project with Government based on theownership approach and has proposed to use property development rights relatingto a site at the former Valley Road Estate site to bridge the funding gap. The funding model for these new rail projects will take different forms, eachappropriately designed for the project. As always, the Company will seek tocreate a commercial return on its investments above its cost of capital and atrates commensurate with the risk of the projects. For the West Island Line, theGovernment has indicated that it would consider a capital grant model wherebyGovernment grants to the Company a sum of money, currently estimated at HK$6billion, to establish the financial viability of the project. The South IslandLine (East) will likely follow the Company's traditional "Rail and Property"approach, whereby property development rights will be granted to us. A thirdmodel that could be used for future rail lines would be the Service Concessionmodel used in the Rail Merger, whereby Government (or KCRC, which is whollyowned by the Government) pays for the initial capital costs of the rail line andthe Company operates the line by paying an annual concession payment as well asbeing responsible for maintenance and upgrades; KSL has adopted this approach. For the new station at LOHAS Park (in Tseung Kwan O South), civil and structuralworks were substantially completed in October 2007, and track installation wassubstantially completed in December 2007. Design of the railway electrical andmechanical systems has been completed, manufacturing of major plant andequipment is in progress, and installation works are on schedule for completionof the station in 2009. Construction Work for the pedestrian subway at Cheung Lai Street connecting LaiChi Kok Station with the new developments to the south of Lai Chi Kok Road beganin August 2007. Overseas Expansion Our overseas expansion took a step forward with the award of the LondonOverground concession to London Overground Rail Operations Ltd (LOROL), our 50:50 joint venture with UK's Laing Rail (now being acquired by Deutsche Bahngroup). Works on the Beijing Metro Line 4 (BJL4) project made steady progressand the process to gain approval of the Shenzhen Metro Line 4 (SZL4) projectcontinued. In Beijing, tendering for the Electrical & Mechanical (E&M) Works Contracts ofBJL4 was substantially completed. Design works and manufacturing for E&Mequipment advanced smoothly. Testing and commissioning works of the first twotrains commenced in December 2007. In Shenzhen, we continued to support the Shenzhen Municipal Government inobtaining approval on the SZL4 project from the National Development and ReformCommission. Preparatory work and expanded trial section work continue withundertakings from the Shenzhen Municipal Government to reimburse certain of thecosts incurred if the project is not approved. Under the current policyrelating to property development in China, the public sector funding support tothis project is likely to take other forms than the grant of propertydevelopment rights. The Company will ensure that the project, if approved, willprovide satisfactory returns to its shareholders. We continue to pursue otherprojects in the Mainland of China, such as the BJL4 Extension to DaxingDistrict, as well as the development of new lines in Hangzhou, Suzhou, Tianjinand Wuhan. In Europe, our joint venture with Laing Rail, LOROL, was awarded the LondonOverground concession on 19 June 2007. On 11 November, LOROL successfully tookover the concession, which allows it to operate services on five existing linesin Greater London for seven years. Financial Review The Group achieved strong financial results in 2007. Total fare revenuesincreased by 9.1% from HK$6,523 million to HK$7,115 million with fare revenuefrom Domestic Service (including KCR Lines after the Rail Merger) increasing by5.1% in 2007 to HK$6,213 million. Fare revenues from Airport Express increasedby 7.0% to HK$655 million whilst Cross-boundary, Light Rail, Bus and Intercityservices contributed total revenue of HK$247 million for the period after theRail Merger. Non-fare revenues increased by 18.5% in 2007 to HK$3,575 millioncomprising HK$1,741 million of station commercial and rail related businessincomes and HK$1,834 million of property rental, management and other incomes. Total revenues for 2007 therefore increased by 12.0% to HK$10,690 million. Total operating costs, excluding merger related expenses, increased by 10.1% in2007 to HK$4,778 million after accounting for the incremental operating costsfollowing the Rail Merger in December. Operating profit from railway andrelated business before depreciation and amortisation therefore increased by13.7% to HK$5,912 million before accounting for merger related expenses. Weestimate that the Rail Merger contributed approximately HK$284 million to suchoperating profit from 2 December to the year end before merger related costs. Operating margin also increased from 54.5% in 2006 to 55.3%. Property development profits for 2007 increased significantly from HK$5,817million to HK$8,304 million mainly due to profit recognition from Le Point atTiu Keng Leng Station. As noted in the 2006 Annual Report, costs relating tothe Le Point property development had been accounted for in 2006 and henceprofit recognition for Le Point in 2007 was based predominately on our share ofthe revenue from sales of units at the development, leading to significantprofit booking in 2007. Depreciation and amortisation charges for 2007increased by 2.4% to HK$2,739 million while interest and finance chargesdeclined by 5.9% to HK$1,316 million as a result of substantial cash inflowsduring the early part of the year. With the Rail Merger, merger relatedexpenses charged to the 2007 profit and loss account were HK$193 million.Acquisitions of assets in 2007 included investment property subsidiaries fromKCRC as part of the Rail Merger and the Ngong Ping 360 operation managementcompany from the previous contractor; fair market adjustments for such assetsproduced a net gain of HK$187 million. Excluding investment property revaluation, net profit attributable toshareholders of the Company from underlying businesses for 2007 increased by43.8% to HK$8,571 million, or HK$1.54 per share as compared with HK$1.08 in2006. After accounting for the revaluation of investment properties, reportedearnings attributable to shareholders of the Company were HK$15,180 million withearnings per share of HK$2.72. The Company's balance sheet showed an 18.6% increase in net assets fromHK$76,786 million as at 31 December 2006 to HK$91,037 million as at 31 December2007. Total assets increased from HK$120,421 million in 2006 to HK$155,668million as at 31 December 2007 mainly attributable to the addition of theService Concession assets and property package acquired in the Rail Merger aswell as the appreciation in market values of investment properties. Totalliabilities increased from HK$43,635 million in 2006 to HK$64,631 million at2007 year end mainly due to the additional borrowings, obligations under theService Concession and other liabilities arising from the Rail Merger. Including the obligations under the Service Concession of HK$10,685 million as acomponent of debt, the Group's net debt-to-equity ratio increased from 36.3% at2006 year-end to 48.5% at 2007 year end. Cash flow of the Company remained strong during the year with net cash inflow ofHK$5,965 million generated from railway and related activities and HK$5,824million of cash receipts from our property development business. After paymentsfor capital projects, interest expense, working capital and dividends, a netcash inflow of HK$6,122 million was generated before payments for the RailMerger. Upfront payments of HK$12,040 million were incurred while reimbursementof HK$786 million was received in respect of the assumption of certain KCRCassets and liabilities for the Rail Merger, resulting in a cash deficit ofHK$5,132 million for the year, which was financed by increase in debt ofHK$5,401 million. In view of the strong financial performance in 2007, the Board has recommended afinal dividend of HK$0.31 per share which, when added to the interim dividend ofHK$0.14, will give a total dividend of HK$0.45 per share for the year ,representing an increase of HK$0.03 or 7.1% as compared to last year. As inprevious years, the Financial Secretary Incorporated has agreed to receive itsentitlement to dividends in the form of shares to the extent necessary to ensurethat a maximum of 50% of the Company's total dividend will be paid in cash. Human Resources The commitment, loyalty and professionalism of our staff have long been thefoundation of our success. In the preparations for the Rail Merger, weconsistently followed the principle of "One Company, One Team", and consultedour colleagues on all matters that affected their future. The Rail Merger wasnot simply a financial transaction involving physical assets and operationalintegration; it was a process that involved people. To help our colleagues tolearn about the merger process, and to provide an opportunity for them tointeract with each other, 99 Cultural Integration workshops were held. Every oneof our colleagues attended at least one of these workshops. Their views weresought and they were kept abreast of developments through many differentchannels, including publications, newsletters and communication sessions. Theseprogrammes were designed to make the merger process more transparent and toreduce uncertainties. Our numerous training and development programmes to enhance skills and maintainmotivation continued throughout the year, with courses covering issues such asempathetic listening, empowerment and railway safety. In order to meet thefuture requirements of the Company, several major initiatives were undertaken todevelop management and leadership talents, including an Executive AssociateScheme and a graduate trainee programme with graduates from both Hong Kong SARand the Mainland of China. We also continued to devote resources to developingand resourcing staff for our expanding overseas business and to create ourculture at our operations offshore. Outlook Uncertainties in the global economy continued in the latter part of 2007 andinto 2008, with the risk of a slowdown in the U.S.. However, with continuedgrowth in the Mainland of China and barring any further major external shocks,we hold a positive view on the economic prospects of Hong Kong in 2008. The Rail Merger will have a positive full-year impact on our businesses in 2008.We remain confident of achieving the HK$450 million per year in mergersynergies over three years. In 2008, we are of the view that approximatelyHK$130 million of such synergies could be achieved through energy optimisation,combined procurements and revenue enhancements through the enlarged network. However rail operating margin is expected to be lower in 2008 as the result ofthe fare reduction and also the lower margin of the KCR System. Stationcommercial and related businesses will benefit from economic growth in Hong Kongas well as the full year impact of the Duty Free shop tenancies in Hung Hom, LoWu and Lok Ma Chau. However, we will continue to see pressure on ourtelecommunications business with further cannibalisation of 2G service by 3G. In our property and other businesses, our property investment and managementbusiness will benefit from the full year effect of Elements Phase 1 as well asthe expected opening of Elements Phase 2 of around 7,609 square metres grosstowards the end of 2008. We should also benefit from the full year effect of there-opening of Ngong Ping 360 and the acquired investment property portfoliounder the Rail Merger. In our property development business, depending on the progress of constructionsand pre-sale, we expect to recognise most of our remaining property deferredincome balance (before deduction of related cost) of HK$400 million in the next18 months, which mainly relates to properties along the Airport Railway, such asElements in Kowloon Station, Coastal Skyline and Caribbean Coast in Tung ChungStation. In Tseung Kwan O, pre-sales have been successfully completed for TheCapitol, LOHAS Park Package 1, and depending on the issuance of the OccupationPermit, we may be able to recognise surplus proceeds from this development inthe second half of 2008. Pre-sales should also commence this year for Ho TungLau, one of the eight property development projects acquired in the Rail Merger.Once again depending on the progress of pre-sales and with the OccupationPermit expected to be received before the year end, there is a possibility ofprofit recognition from this development in 2008. From an accountingperspective, our acquisition costs for the property developments (such as HoTung Lau) acquired under the Rail Merger will have to be accounted for beforeprofits can be recognised. Another of the eight projects acquired in the RailMerger, Wu Kai Sha, will likely start pre-sales in 2008 but as the OccupationPermit is not expected until after 2008, it is unlikely that profits will berecognised on the project in 2008. The magnitude of property developmentprofits in 2007 were mainly the result of the profit accounting of Le Point inTiu Keng Leng, whereby the costs for that project were already accounted for in2006. Hence, we do not expect the magnitude of development profits in 2007 tobe repeated in 2008. In our property tender activities, we are likely to tenderthe Che Kung Temple site in 2008, for which the Expression of Interest waslaunched in early March 2008. Meanwhile, as the development agent for West Railproperty developments, we will recommend the sites at Tsuen Wan West (TW5 andTW7) for tender invitation within the next 12 months, subject to marketconditions. These three railway related property development sites are plannedto provide a total of about 6,200 flats. Finally, I would like to take this opportunity to thank my fellow directors andall my colleagues for their tremendous energy and dedication in a trulymemorable year for the Company. By Order of the BoardC K ChowChief Executive Officer Hong Kong, 11 March 2008 The financial information relating to the financial year ended 31 December 2007set out above does not constitute the Group's statutory consolidated accountsfor the year ended 31 December 2007, but is derived and represents an extractfrom those consolidated accounts. Statutory consolidated accounts for the yearended 31 December 2007, which contain an unqualified auditor's report, will bedelivered to the Registrar of Companies. Certain statements contained in this Announcement may be viewed asforward-looking statements. Such forward-looking statements involve known andunknown risks, uncertainties and other factors, which may cause the actualperformance, financial condition or results of operations of the Company to bematerially different from any future performance, financial condition or resultsof operations implied by such forward-looking statements. CLOSURE OF REGISTER OF MEMBERS The Register of Members of the Company will be closed from 8 April 2008 to 15April 2008 (both dates inclusive). In order to qualify for the final dividend,all transfers, accompanied by the relevant share certificates, must be lodgedwith the Company's Registrar, Computershare Hong Kong Investor Services Limitedat Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, HongKong for registration not later than 4:30 p.m. on 7 April 2008. It is expectedthat the final dividend will be paid on or about 18 June 2008. Members of the Board: Dr. Raymond Ch'ien Kuo-fung (Chairman)**, Chow Chung-kong(Chief Executive Officer), Professor Cheung Yau-kai*, David Gordon Eldon*,Christine Fang Meng-sang*, Edward Ho Sing-tin*, Lo Chung-hing*, Ng Leung-sing*,Abraham Shek Lai-him*, T. Brian Stevenson*, Professor Chan Ka-keung, Ceajer(Secretary for Financial Services and the Treasury)**, Secretary for Transportand Housing (Eva Cheng) ** and Commissioner for Transport (Alan Wong Chi-kong)** Members of the Executive Directorate: Chow Chung-kong, Russell John Black,William Chan Fu-keung, Thomas Ho Hang-kwong, Lincoln Leong Kwok-kuen, FrancoisLung Ka-kui, Andrew McCusker and Leonard Bryan Turk * independent non-executive Directors ** non-executive Directors This announcement is made in English and Chinese. In the case of anyinconsistency, the English version shall prevail. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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